Firing up Brazil’s economy

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A hot, dry spell in southeastern Brazil has pushed up energy prices, stretched government finances and raised the threat of water rationing in its largest city, Sao Paulo, just months before it hosts one of the world’s largest sport events, the soccer World Cup.

It looks like the last thing Brazil needed as it scrambles to woo investors and avoid a credit downgrade.

But if the scattered rains that started to pour down over the past few days bring in continued relief through March, the heat could actually prove to be a much-needed boost for Brazil’s economy, research firm LCA found.

The Sao Paulo-based firm calculated the net impact of above-average temperatures on gross domestic product. It found that the rush to buy air conditioners, combined with other reasons like the energy those air conditioners will consume, might push up Brazil’s quarterly growth in the first three months of 2014 by half a point to 1.0 percent.

Some retailers have reported an increase of 500 percent in air conditioner sales as many in Brazil’s rising middle-class got tired of sleepless, warm nights.

“Part of that effect is permanent,” LCA said in its research note. “The bigger consumption of energy, services and non-durable goods is not going to be reversed.”

For a country that barely avoided a recession in 2012 and is still struggling to take off, that would be a big help. President Dilma Rousseff would also welcome the news as faster growth would boost tax revenues, helping her pay for the expensive thermal plants turned on to avoid energy rationing due to low water levels at hydroelectrical plants.

Among other things that could be heating up the economy, lack of rain might have helped construction. More sunny days also offered more opportunities for people to go out and spend money.

It’s too early to say the hot spell is actually a boon. A continued drought remains a severe threat to the economy, more than huge snowstorms, frigid temperatures and heavy rains have been to the U.S. and British economies so far. Any boost won’t also solve Brazil’s ultimate problem of strong demand and weak supply.

If anything, it’s making it worse.

But for those looking for a small bit of good news following so many disappointments with Brazil, one is just around the corner: it only needs rain.

Author Profile

Silvio Cascione is a senior correspondent for Reuters Polls in Brasilia, covering through market surveys and economic data the sharp slowdown of Brazil's economy. He also leads polling across Latin America on several issues such as regional growth prospects, inflation, and foreign exchange rates.